Am I Mismanaging My Debt or Am I Facing Insolvency?

While getting into financial distress and becoming insolvent happens far more easily than one may think, merely being over-indebted does not constitute being insolvent. Financial distress and insolvency can happen to anyone, regardless of their financial standing or level of success. It is important to be aware of the financial risks of debt, to plan ahead, and seek help sooner rather than later should financial difficulties arise.

A person is insolvent when they can no longer pay their debts. If an individual is sequestrated, in other words, their estate is placed in the hands of a court-appointed Curator, then it formalises their status as insolvent. This occurs when you surrender your estate to the Master of the High Court under the governance of the Insolvency Act 24 of 1936. An individual may apply for sequestration, or a creditor may apply for their debtor’s sequestration. The former is referred to as voluntary sequestration, while the latter is compulsory sequestration.


Be Aware of the Causes of Insolvency

High debt levels create a major risk of becoming insolvent. Many people and businesses take on too much debt and the slightest unbudgeted expense can make it difficult for them to meet their repayment obligations. This may lead to default and eventually insolvency. Economic downturns can cause a decline in sales, which, for employees who earn commission on sales, may lead to financial distress. Similarly, a job loss, a health crisis not covered by health insurance, unbudgeted car repairs or other unexpected events can become financial crises for those who have too much debt. The best safeguard against becoming insolvent is to avoid excessive debt.


Managing Debt and Avoiding Financial Distress

Managing debt and avoiding insolvency can be challenging, but there are several strategies you can adopt to stay in control of your finances.

  • Create a budget so that you know exactly what your financial needs are. By creating a monthly budget that tracks your income and expenses, you will know where your money goes and identify areas where you can save or cut back on spending.
  • Prioritise debt payments in your budget, especially those with high interest rates, such as credit card debt. Where at all possible, try to pay more than the minimum amount due each month to reduce your overall debt more rapidly and save on interest. Investigate consolidating your debt into one loan at a lower interest rate. This will reduce your monthly payments and make it easier to manage your debt.
  • Avoid taking on new debt. Do not use your credit cards or apply for any additional credit when you’re already struggling to pay off existing debts. If possible, build up a savings buffer that can help you avoid taking on more debt in the future. Even a small amount put aside each month adds up over time. Savings help you cope with unexpected expenses that can derail your finances.
  • Get professional help if your debt is becoming unmanageable. As legal professionals, we can offer debt relief by analysing your situation in a free consultation and offering a tailored solution to best suit you. If your debt gets out of hand and is at a point where insolvency is a real possibility, engage with attorneys who specialise in insolvency, sequestrations, and debt. It takes time, effort, and the right advice to become debt-free.


Take Your First Step Towards Financial Freedom

Francois Uys Inc Attorneys are experts in dealing with debt and insolvency. Let us assist you in formulating a bespoke solution that will secure a debt-free life, as we have done for thousands of individuals and businesses before you. Our vastly experienced team will get you the best result with the least possible stress. We have over 33 years of experience with insolvency, liquidations, and sequestrations. We will guide you through the legal formalities. Getting the best outcome depends very much on the advice and guidance you receive at every step of the process. Take your first step towards financial freedom by contacting Francois Uys Inc Attorneys.


Disclaimer: This article is for information purposes only. It does not constitute legal advice and cannot be used to make any decisions. For advice on the topics of debt and insolvency contact Francois Uys Inc Attorneys. The information is relevant as of the date of publishing.